Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 49
3.3 Telecom equipment |
Criterion 2
Distinct within the context of the contract
– The modem and router are distinct within the context
of the contract because Telco A does not provide an
integration service.
– The modem, router and internet services do not modify or
customize one another.
– Customer C could benefit from the internet services using
routers and modems that are not sold by Telco A. Therefore,
the modem, router and internet services are not highly
dependent on, or highly interrelated with, each other.
Observations
Telecom equipment may be sold, leased or provided to the customer as
part of their service
Topics 840, 842
[IAS 17, IFRS 16]
When a telecom service contract includes equipment, the entity assesses
whether that equipment is leased, sold, or provided to the customer as part of its
service. This assessment is required even if the contract does not explicitly refer
to the equipment as leased or the lease payments are not billed separately from
other services. Leased equipment is out of scope of the new standard (see 1.3).
If the entity concludes that the equipment is not leased to the customer, then
it needs to analyze the nature of the promise made to the customer. If the
equipment transfers to the customer, then it may be distinct and therefore a
separate performance obligation.
There may be situations where the telecom entity charges a monthly fee for
the use of the equipment that does not represent a lease but is provided to the
customer as part of its service. For example, an entity may provide modems or
set-top boxes, over which it retains control, because they can be exchanged by
the entity as technology changes. In those cases, the equipment remains an
asset of the entity. Determining whether the use of the equipment is a service
distinct from the network services may not have a significant effect on the timing
of revenue recognition because both services are typically provided concurrently.
The classification of the revenues received, however, for disaggregated revenue
disclosure or segment reporting requirements, as well as management,
regulatory and tax reporting, should be considered.
Equipment used to deliver service is often an element of the telecom network
(e.g. backbone, cable drops, wireless towers and repeaters). This equipment is
typically owned and operated by the telecom entity and is accounted for as an
asset/fulfillment cost. These items are not performance obligations because they
are not a promised good or service and do not transfer to the customer.
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